Building a Supply-Side GDP Model

MGI's analysis is a supply-side model that estimates the economic effects of closing the gender gap in labor markets across ninety-five countries, which cover 93 percent of the world's female population and generate 97 percent of the world's GDP. MGI modeled three scenarios to estimate the economic opportunity presented by bridging the gender gap in the workforce by 2025. The first scenario is a business-as-usual projection of GDP growth based on consensus forecasts. The second is a full-potential scenario that measures the total economic opportunity of closing gender gaps in the world of work. While full gender parity is a worthy aspiration, the complex and multifaceted issues that affect women's participation in work mean that this is a challenging goal to achieve by 2025. Equally, participating in the workforce is a matter of personal choice. MGI therefore also developed the best-in-region scenario. This third scenario describes the GDP growth opportunity for each country if it were to match the rate of progress toward gender parity of the fastest-improving country in its region based on selected workforce measures over the past decade.

MGI's analysis of economic gains measures three dimensions of work: labor force participation rates, hours worked, and the sector mix of employment (which affects labor productivity). First, closing the gap in labor force participation accounts for 54 percent of the incremental GDP growth in the full-potential scenario. Second, women in the labor force work fewer hours than men because many are in part-time jobs—a trend that could be driven partly by choice and partly by their inability to do full-time work given family and other home-related responsibilities. Closing this gap accounts for 23 percent of the incremental GDP growth in the full-potential scenario. Third, women are disproportionately represented in lower-productivity sectors such as agriculture, and are insufficiently represented in higher-productivity sectors such as business services. Shifting women into work in higher-productivity sectors on a par with the employment pattern of men contributes another 23 percent of the incremental GDP growth in the full-potential scenario.

Notably, the influence of each of these three drivers varies among regions. In India and across the Middle East and North Africa, increasing female labor force participation would contribute 90 and 85 percent, respectively, of the total additional economic growth. Women already participate in the labor force in large numbers in sub-Saharan Africa and in Eastern Europe and Central Asia; there, around 40 percent of the potential increase in output would come from shifting women into higher-productivity sectors. In Western Europe, about 50 percent of the full-potential growth would come from closing the gap between men and women in the number of hours worked.

MGI's analysis assumes that in the full-potential scenario, women's participation matches that of men on each of the three measures—labor force participation rates, hours worked, and the sector mix of employment. In the best-in-region scenario, countries match the rate of progress toward gender parity of the fastest-improving country in their region across each of these three measures. Countries in Western Europe, for example, would close the gap between men and women in labor force participation by 1.5 percentage points a year, in line with best-in-region Spain's progress between 2003 and 2013. In East and Southeast Asia, countries would match Singapore's rate of 1.1 percentage points a year, while in Latin America, countries would match Chile's annual rate of 1.9 percentage points.

Economic factors influence how much a country gains from increasing gender parity in the workforce. Female labor force participation rates tend to be high in countries at low stages of economic development, dip in middle-income countries, and rise again in more advanced economies. The lower the current level of gender parity in work, the more a country stands to gain from closing workforce-related gender gaps. Demography can also be a factor: for example, increasing women's economic participation can have a particularly positive effect on countries with aging populations. Many of these economies face the prospect of slowing GDP growth due to a shrinking labor force as the share of population over the age of fifty-five grows. Increasing female participation can help mitigate this effect.

The full-potential and best-in-region scenarios are not meant to be forecasts: they use empirical assumptions to identify potential economic gains that may encourage progress toward gender parity. MGI also acknowledges that realizing this potential will require addressing demand-side constraints, addressing barriers surrounding unpaid work, making investments in job creation and skills development, and so on. Furthermore, the analysis does not take into account any second-order consequences from increased participation by women, including increased consumption by women, any negative effects on male labor force participation, or any drag on productivity due to changes in the supply of labor relative to capital. The analysis also does not take into account other economic benefits from bridging gender gaps (for example, the intergenerational benefits that may arise from better-educated and healthier women raising families).

MGI's analysis relies on data from various external sources. Business-as-usual estimates were based on data from IHS Global Insights. Other data sources used include the UN World Population Prospects, the International Labor Organization, the World Input-Output Database, data from select national statistics offices, and Oxford Economics.

Please note that the MGI research was published in 2015 and this analysis therefore relies on data from the above sources available in that year. Any differences with numbers today could arise from differences in actual data vs. projections since that time, and/or updates made by the above agencies to their data.

Assessing Gender Parity

MGI assessed the level of gender parity in a country through an analysis of fifteen indicators covering gender equality in work as well as physical, social, political, and legal gender equality. They identified these indicators through a review of global charters and statements of principle, such as the Convention on the Elimination of All Forms of Discrimination Against Women and the Sustainable Development Goals.

The fifteen indicators are:

the ratio of labor force participation rates by gender;

the ratio of men and women with professional and technical jobs;

the perceived wage gap for similar work between men and women;

the ratio of women and men in leadership positions;

the distribution of unpaid care work among men and women;

the percentage of women whose need for family planning is not met;

maternal mortality rates;

education levels by gender;

the extent to which women have access to financial services relative to men;

the extent to which women have access to cell phones and internet services relative to men;

the presence of legal protections for women;

the number of women in ministerial and parliamentary roles;

sex ratio at birth;

the percentage of girls and young women aged fifteen to nineteen who are married; and

the percentage of women who have experienced physical and/or sexual violence from an intimate partner at some time in their lives.

Where possible, MGI measured the difference between the position of men and women (for example, how the time men spend on unpaid care work compares with that of women). Some of the indicators—such as education and legal protection—are composite indicators to include multiple aspects of inequality. See the appendix section of MGI's report for a description of each indicator and its data source.

MGI's analysis found that advancing gender parity on four specific measures—education level, financial and digital inclusion, legal protection, and unpaid care work—will help achieve gender equality in work and in society. Each point was sourced and measured as follows.

Definition of Terms

This interaction includes the following terms, as defined below.

GDP

The gross domestic product is used as a broad measure of economic activity, and represents the value of a country's production of goods and services. GDP per person is used as a measure of a country's standard of living: a country with higher GDP per person is considered better off in economic terms than a country with lower GDP per person.

GDP Gains With Gender Parity in the Workforce

The potential GDP gains by 2025 if a country achieves gender parity in the workforce. The McKinsey Global Institute (MGI) calculated this figure using three measures: labor force participation, hours worked, and the share of employment in sectors with different productivity levels. They calculated female inputs so that they were equal to those of males in 2025, fully bridging the gap in participation rates, the gap in employment rates, and the gap in hours worked. They compared these to a business&hairsp;—&hairsp;as&hairsp;—&hairsp;usual case, in which women’s economic participation on these three measures increases at the country’s historic rate of progress.

GDP Gains Matching Best-in-Region

The potential GDP gains by 2025 if a country matches the rate of progress toward parity of the fastest-improving country in its region over the past decade. MGI calculated the economic gains if a country were to match the fastest rate of progress toward parity for labor force participation, hours worked, and the share of employment in sectors with different productivity levels. They calculated the gains in comparison to a business-as-usual case, in which women's economic participation on these three measures increases at the country's historic rate of progress.

Gender Parity Score

MGI measured the differences between men and women—and thus how close women are to parity—across fifteen indicators (see above). They grouped the fifteen indicators into four areas: gender equality in work, essential services, legal protection and political voice, and physical security and autonomy. The gender parity score weights each indicator equally and calculates an aggregate measure at the country level of how close women are to gender parity, where a score of one hundred indicates parity. A gender parity score of forty, for example, indicates that, on average, women have only 40 percent of the opportunities that men do, measured in terms of the selected fifteen indicators. See the appendix section of MGI's report for additional detail.

Gender Equality in Work

This includes the ability of women to find employment and be compensated fairly for it, share unpaid care work equitably, have the skills and opportunity to perform high-productivity jobs, and occupy leadership positions. MGI measured this by the ratio of labor force participation rates by gender, the ratio of men and women with professional and technical jobs, the perceived wage gap for similar work between men and women, the ratio of women and men in leadership positions, and the distribution of unpaid care work among men and women.

Gender Equality in Society

This includes three components: essential services, legal protection and political voice, and physical security and autonomy.

Essential Services. This includes women's access to health care, education, and financial and digital support, which are vital to women's economic participation.

Legal Protection and Political Voice. This includes women's right to work, access institutions, inherit assets, be protected from violence, and have the opportunity to participate in political life. MGI measured this by the number of women in ministerial and parliamentary roles and the presence of legal protections for women, such as laws to protect individuals against violence, ensure parity in inheriting property and accessing institutions, and having the right to find work and be fairly compensated.

Physical Security and Autonomy. This includes the right of women to safety from bodily harm. MGI measured this by the sex ratio at birth (ratio of male to female births), child marriage (the percentage of girls married between the ages of fifteen and nineteen), and violence against women (as measured by the percentage of women who have experienced violence from an intimate partner at some time in their lives).

Financial Inclusion

This measures the degree to which individuals and businesses have access to the financial products and services, including savings, credit, insurance, and payments. MGI measured this by the relative rates between women and men of holding accounts at financial institutions, having access to credit from financial institutions, and access to mobile banking.

Digital Inclusion

This is the measure of individuals and businesses having access to and using information and communication technologies. MGI measured it by the relative rates between women and men's use of the internet and mobile phones.

Unpaid Care Work

This refers to all unpaid services an individual provides for their family, including cooking, cleaning, and caring for children and the elderly.

Informal Economy

This refers to nonagricultural employment in the informal sector, such as paid domestic workers, contract workers, unregistered workers, and employers in informal enterprises, among others.

Credits

Research Acknowledgments

This CFR digital interactive is a product of the Women and Foreign Policy program's Economic Inclusion and Global Growth Project, generously supported by the William and Flora Hewlett Foundation. The project was informed by the guidance of distinguished experts from multilateral organizations, academia, government, and the private sector.

Executive Production

Jamille Bigio Senior Fellow for Women and Foreign Policy

Rachel Vogelstein Douglas Dillon Senior Fellow and Director of the Women and Foreign Policy Program

Alexandra Bro Research Associate of the Women and Foreign Policy Program

Anne Connell former Assistant Director of the Women and Foreign Policy Program

Becky Allen former Research Associate of the Women and Foreign Policy Program